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19 October 2021
Are you 100% sure your startup needs funding?
Unsplash © Fabian Møller

Are you 100% sure your startup needs funding?

One of the biggest mistakes you can make is chasing money you don’t need. In a recent Teaching Startup (#71), I answered a question from an entrepreneur about whether to fortify his bootstrap approach with crowdfunding or angel investment, or go right into a venture capital raise.

I laid out a bunch of options, including clarifying what “crowdfunding” meant in his situation, and I’m pretty sure I got him started down the right path. But one thing about his question caught my eye, and I want to elaborate a little bit more in this post.

Have you considered whether or not you really need funding at all?

Fiction is just as strange as the truth

I just started rewatching HBO’s Silicon Valley again and holy crap does that show still stand up. This time through, I realised, in the very first episode, how different the whole thing would have played out if Richard the founder turned down both the acquisition offer and the investment offer and instead forged ahead on his own.

Better? Who knows. Different? Most definitely. Wouldn’t have been nearly as good a show. But we entrepreneurs aren’t in this for the laughs.

First of all, Richard was gainfully employed and had already fallen into a situation in which he could work on his own project away from his job and on his own time. Granted, he gave up 10% of his company to join an “incubator,” but that’s just another cautionary tale about incubators. I could go on forever about that, maybe in another post.

Living in the heart of Palo Alto, Richard also had access to all the resources and connections he needed. He even immediately found employees who came to work for him in exchange for equity. That same kind of access is a click or a Zoom away for people like you and me.

Does it make startup more difficult? Yes. Impossible? No.

And what was the first thing he spent his funding on? Ugly T-shirts and a margarita maker.

I told you that show stands up.

Investment is not a substitute for revenue or traction

Getting back to reality. The founder who asked me the question mentioned that he’s bootstrapping his way to MVP and then looking for funding. And that raises some valid points:

If your startup goes into MVP but can’t sell a small amount of product to a small number of prospects, no amount of funding in the world is going to change that when you get to a broader market.

If your product truly is viable, you won’t know what you need to raise money for until you’ve proven that viability. You might as well buy a box of ugly T-shirts and a margarita maker.

Knowledge is power. Data provides knowledge. And a minimum viable product should give you ample data to verify the knowledge to provide the power to leverage your funding and make it pay off.

Or that same data could light a path towards self-sufficient scale and growth, fuelled by revenue.

Look, half of the startups I’ve worked for have been VC-backed, and all of the startups I’ve founded have been bootstrapped. I’m not against seeking investment, quite the opposite. But what I am for is the founder taking a step back, data in hand, to realise exactly what it is they’ve got and what the right play might be.

For every successful founder I know who could not have launched without outside seed funding, I know another who never should have taken funding, and that funding sank the startup like a stone around their neck.

Don’t wait too long to ask yourself whether your startup actually needs funding or not. And don’t ever answer that question without data, knowledge, and power to back you up.

This article was originally published on Medium by Joe Procopio

Joe Procopio is a multi-exit, multi-failure entrepreneur. He is the founder of startup advice project TeachingStartup.com and is the Chief Product Officer of mobile vehicle care and maintenance startup Get Spiffy. You can read all his posts at joeprocopio.com